8-K 1 a16-1789_18k.htm 8-K

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 8-K

 

CURRENT REPORT PURSUANT TO SECTION 13 OR 15 (d)

OF THE SECURITIES EXCHANGE ACT OF 1934

 

Date of Report: January 19, 2016

(Date of earliest event reported)

 

INTERNATIONAL BUSINESS MACHINES CORPORATION

(Exact name of registrant as specified in its charter)

 

New York

 

1-2360

 

13-0871985

(State of Incorporation)

 

(Commission File Number)

 

(IRS employer Identification No.)

 

ARMONK, NEW YORK

 

10504

(Address of principal executive offices)

 

(Zip Code)

 

914-499-1900

(Registrant’s telephone number)

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

o   Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

o   Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

o   Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

o   Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 

 



 

Item 2.02.   Results of Operations and Financial Condition.

 

The registrant’s press release dated January 19, 2016, regarding its financial results for the periods ended December 31, 2015, including consolidated financial statements for the periods ended December 31, 2015, is Attachment I of this Form 8-K.  Attachment II are the slides for IBM’s Chief Financial Officer Martin Schroeter’s fourth quarter earnings presentation on January 19, 2016, as well as certain reconciliation and other information (“Non-GAAP Supplemental Materials”) for information in Attachment I (press release), Attachment II (slides) and in Mr. Schroeter’s presentation. All of the information in Attachment I and II is hereby filed.

 

IBM’s web site (www.ibm.com) contains a significant amount of information about IBM, including financial and other information for investors (www.ibm.com/investor/).  IBM encourages investors to visit its various web sites from time to time, as information is updated and new information is posted.

 

2



 

SIGNATURE

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, hereunto duly authorized.

 

 

Date: January 19, 2016

 

 

 

 

 

 

By:

/s/ Stanley J. Sutula III

 

 

 

 

 

Stanley J. Sutula III

 

 

Vice President and Controller

 

3



 

ATTACHMENT I

 

IBM REPORTS 2015 FOURTH-QUARTER AND FULL-YEAR RESULTS

 

Fourth-Quarter 2015:

·                 Diluted EPS from continuing operations:

·           Operating (non-GAAP): $4.84, down 17 percent; impact of 20 points from prior year System x divestiture gain;

·           GAAP: $4.59, down 17 percent;

·                 Net income from continuing operations:

·           Operating (non-GAAP): $4.7 billion, down 19 percent; impact of 19 points from prior year System x divestiture gain;

·           GAAP: $4.5 billion, down 19 percent;

·                 Revenue from continuing operations: $22.1 billion:

·           Down 2 percent adjusting for currency; down 9 percent as reported;

·                 Services backlog of $121 billion, up 1 percent adjusting for currency.

 

Full-Year 2015:

·                 Diluted EPS from continuing operations:

·           Operating (non-GAAP): $14.92, down 10 percent; impact of 7 points from prior year System x and customer care divestiture gains;

·           GAAP: $13.60, down 13 percent;

·                 Net income from continuing operations:

·           Operating (non-GAAP): $14.7 billion, down 12 percent; impact of 7 points from prior year System x and customer care divestiture gains;

·           GAAP: $13.4 billion, down 15 percent;

·                 Gross profit margin from continuing operations:

·           Operating (non-GAAP): 50.8 percent, up 20 basis points;

·           GAAP: 49.8 percent, down 20 basis points;

·                 Revenue from continuing operations: $81.7 billion:

·           Down 1 percent adjusting for currency (8 points or more than $7 billion) and divestitures (3 points or nearly $3 billion); down 12 percent as reported;

·                 Strategic imperatives revenue of $28.9 billion now represents 35 percent of total IBM revenue, up 26 percent adjusting for currency and the System x divestiture; up 17 percent as reported:

·           Total Cloud revenue of $10.2 billion up 57 percent adjusting for currency and the System x divestiture, up 43 percent as reported;

·           Cloud delivered as a service revenues of $4.5 billion, up 61 percent adjusting for currency, up 50 percent as reported;

·           Annual run rate of $5.3 billion vs. $3.5 billion in the fourth quarter 2014 for cloud delivered as a service;

·           Business analytics revenue up 16 percent adjusting for currency, up 7 percent as reported to $17.9 billion;

·           Mobile revenue more than tripled;

·           Security revenue up 12 percent adjusting for currency, up 5 percent as reported;

·                 Free cash flow of $13.1 billion, up $0.7 billion;

·           Free cash flow realization equaled 98 percent of GAAP net income from continuing operations;

·                 Total capital return to shareholders of $9.5 billion; dividends of $4.9 billion and gross share repurchases of $4.6 billion;

·                 The company will discuss 2016 during today’s quarterly earnings conference call.

 

ARMONK, N.Y., January 19, 2016 . . . IBM (NYSE: IBM) today announced fourth-quarter 2015 diluted earnings from continuing operations of $4.59 per share, down 17 percent year-to-year.  Operating (non-GAAP) diluted earnings from continuing operations were $4.84 per share, compared with operating diluted earnings of $5.81 per share in the fourth quarter of 2014, down 17 percent.  The prior-year gain from the divestiture of the System x business impacted operating diluted earnings per share from continuing operations by 20 points.

 

“We continue to make significant progress in our transformation to higher value. In 2015, our strategic imperatives of cloud, analytics, mobile, social and security

 



 

grew 26 percent to $29 billion and now represent 35 percent of our total revenue,” said Ginni Rometty, IBM chairman, president and chief executive officer.  “We strengthened our existing portfolio while investing aggressively in new opportunities like Watson Health, Watson Internet of Things and hybrid cloud.  As we transform to a cognitive solutions and cloud platform company, we are well positioned to continue delivering greater value to our clients and returning capital to our shareholders.”

 

Fourth-quarter net income from continuing operations was $4.5 billion compared with $5.5 billion in the fourth quarter of 2014, down 19 percent.  Operating (non-GAAP) net income was $4.7 billion compared with $5.8 billion in the fourth quarter of 2014, down 19 percent.  The prior-year gain from the divestiture of the System x business impacted operating net income by 19 points.

 

Total revenues from continuing operations for the fourth quarter of 2015 of $22.1 billion were down 9 percent (down 2 percent adjusting for currency) from the fourth quarter of 2014.

 

GAAP — Operating (non-GAAP) Reconciliation

 

Fourth-quarter operating (non-GAAP) diluted earnings exclude $0.25 per share of charges: $0.11 per share for the amortization of purchased intangible assets and other acquisition-related charges, and $0.14 per share for non-operating retirement-related charges driven by changes to plan assets and liabilities primarily related to past market performance.

 

Full-year operating (non-GAAP) diluted earnings exclude $1.32 per share of charges: $0.57 per share for the amortization of purchased intangible assets and other acquisition-related charges, and $0.75 per share for non-operating retirement-related charges driven by changes to plan assets and liabilities primarily related to past market performance.

 

Strategic Imperatives

 

Fourth-quarter revenues from the company’s strategic imperatives — cloud, analytics and engagement — increased 10 percent year to year (up 16 percent adjusting for currency).  For the full year, revenues from strategic imperatives increased 17 percent (up 26 percent adjusting for currency and the divested System x business) to $28.9 billion and now represent 35 percent of total IBM consolidated revenue.

 

For the full year, total cloud revenues (public, private and hybrid) increased 43 percent (up 57 percent adjusting for currency and the divested System x business) to $10.2 billion.  Revenues for cloud delivered as a service — a subset of the total cloud revenue — increased 50 percent to $4.5 billion; and the annual as-a-service run rate increased to $5.3 billion from $3.5 billion in the fourth quarter of 2014.  Revenues from business analytics increased 7 percent (up 16 percent adjusting for currency) to $17.9 billion.  Revenues from mobile more than tripled and from security increased 5 percent (up 12 percent adjusting for currency).

 

Geographic Regions

 

The Americas’ fourth-quarter revenues were $10.3 billion, a decrease of 8 percent (down 4 percent adjusting for currency) from the 2014 period.  Revenues from Europe/Middle East/Africa were $7.3 billion, down 9 percent (up 1 percent adjusting for currency).  Asia-Pacific revenues decreased 10 percent (down 3 percent adjusting for currency) to $4.4 billion.  Revenues from the BRIC countries were down 21 percent as reported (down 11 percent adjusting for currency).

 

Services

 

Global Technology Services segment revenues were down 7 percent (up 1 percent adjusting for currency) to $8.1 billion.  Global Business Services segment revenues were down 10 percent (down 4 percent adjusting for currency) to $4.3 billion.

 

The estimated services backlog as of December 31 was $121 billion, up 1 percent year to year adjusting for currency.

 

Software

 

Revenues from the Software segment were down 11 percent to $6.8 billion (down 6 percent adjusting for currency) compared with the fourth quarter of 2014.

 



 

Revenues from IBM’s key middleware products, which include WebSphere, Information Management, Tivoli, Workforce Solutions and Rational products, were $4.9 billion, down 10 percent (down 6 percent adjusting for currency) year to year.  Operating systems revenues of $0.5 billion were down 12 percent (down 7 percent adjusting for currency) year to year.

 

Hardware

 

Revenues from the Systems Hardware segment totaled $2.4 billion for the quarter, down 1 percent (up 3 percent adjusting for currency) year to year.

 

Revenues from z Systems mainframe server products increased 16 percent compared with the year-ago period (up 21 percent adjusting for currency).  Total delivery of z Systems computing power, as measured in MIPS (millions of instructions per second), increased 28 percent.  Revenues from Power Systems were up 4 percent compared with the 2014 period (up 8 percent adjusting for currency).  Revenues from System Storage decreased 11 percent (down 7 percent adjusting for currency).

 

Financing

 

Global Financing segment revenues decreased 15 percent (down 6 percent adjusting for currency) in the fourth quarter at $0.5 billion.

 

Gross Profit

 

The company’s total gross profit margin from continuing operations was 51.7 percent in the 2015 fourth quarter compared with 53.3 percent in the 2014 fourth quarter.  Total operating (non-GAAP) gross profit margin from continuing operations was 52.7 percent in the 2015 fourth quarter compared with 53.9 percent in the 2014 fourth quarter.

 

Expense

 

Total expense and other income from continuing operations increased to $6.3 billion, up 9 percent compared to the prior-year period.  S,G&A expense of $5.2 billion decreased 15 percent year over year.  R,D&E expense of $1.4 billion increased 3 percent year to year; the related expense-to-revenue ratio increased to 6.2 percent compared with 5.5 percent in the year-ago period.  Other (income) and expense was income of $146 million compared with prior-year income of $1.5 billion.  Intellectual property and custom development income was $193 million and interest expense was $128 million.

 

Total operating (non-GAAP) expense and other income from continuing operations increased to $6.1 billion, up 9 percent compared with the prior-year period, driven by the prior-year $1.4 billion gain from the divested System x business and the prior-year expense of $0.6 billion for workforce rebalancing.  Operating (non-GAAP) S,G&A expense of $5.0 billion decreased 15 percent compared with prior-year expense.  Operating (non-GAAP) R,D&E expense of $1.4 billion increased 1 percent year to year; the related expense-to-revenue ratio increased to 6.1 percent compared with 5.6 percent in the year-ago period.

 

Pre-Tax Income

 

Pre-tax income from continuing operations decreased 28 percent to $5.1 billion.  Pre-tax margin from continuing operations decreased 6.3 points to 23.1 percent.  Operating (non-GAAP) pre-tax income from continuing operations decreased 25 percent to $5.5 billion and pre-tax margin was 25.0 percent, a decrease of 5.7 points year to year.

 

***

 

IBM’s tax rate from continuing operations was 12.5 percent, down 9.7 points year over year; the operating (non-GAAP) tax rate was 14.7 percent, down 7.1 points compared to the year-ago period driven by current period discrete items.

 

Net income margin from continuing operations decreased 2.7 points to 20.2 percent.  Total operating (non-GAAP) net income margin from continuing operations decreased 2.7 points to 21.3 percent.

 

The weighted-average number of diluted common shares outstanding in the fourth-quarter 2015 was 973 million compared with 995 million shares in the same period of

 



 

2014.  As of December 31, 2015, there were 966 million basic common shares outstanding.

 

Debt, including Global Financing, totaled $39.9 billion, compared with $40.7 billion at year-end 2014.  From a management segment view, Global Financing debt totaled $27.2 billion versus $29.1 billion at year-end 2014, resulting in a debt-to-equity ratio of 7.3 to 1.  Core (non-global financing) debt totaled $12.7 billion, an increase of $1.1 billion since year-end 2014. IBM ended the fourth-quarter 2015 with $8.2 billion of cash on hand.

 

The company generated full-year free cash flow of $13.1 billion, excluding Global Financing receivables, up $0.7 billion compared to 2014.  The company returned $9.5 billion to shareholders through $4.9 billion in dividends and $4.6 billion of gross share repurchases.  The balance sheet remains strong and is well positioned to support the business over the long term.

 

At the end of December 2015, IBM had approximately $5.6 billion remaining from the current share repurchase authorization.

 

Full-Year 2015 Results

 

Diluted earnings per share from continuing operations were $13.60, down 13 percent compared to the 2014 period.  Net income from continuing operations for the twelve months ended December 31, 2015 was $13.4 billion compared with $15.8 billion in the year-ago period, a decrease of 15 percent.

 

Consolidated net income was $13.2 billion compared to $12.0 billion in the year-ago period, including operating net losses in discontinued operations related to the divested Microelectronics business.  Consolidated diluted earnings per share were $13.42 compared to $11.90, up 13 percent year to year. Revenues from continuing operations for the twelve-month period totaled $81.7 billion, a decrease of 12 percent (down 1 percent year to year, adjusting for currency and divested businesses) compared with $92.8 billion for the first twelve months of 2014.

 

Operating (non-GAAP) diluted earnings per share from continuing operations were $14.92 compared with $16.53 per diluted share for the 2014 period, a decrease of 10 percent.  The prior-year gain from the divestitures of the System x and the customer care outsourcing businesses impacted earnings per share from continuing operations by 7 points.  Operating (non-GAAP) net income from continuing operations for the twelve months ended December 31, 2015 was $14.7 billion compared with $16.7 billion in the year-ago period, a decrease of 12 percent.  The prior-year gain from the divestitures of the System x and the customer care outsourcing businesses impacted net income from continuing operations by 7 points.

 

Forward-Looking and Cautionary Statements

 

Except for the historical information and discussions contained herein, statements contained in this release may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.  Forward-looking statements are based on the company’s current assumptions regarding future business and financial performance.  These statements involve a number of risks, uncertainties and other factors that could cause actual results to differ materially, including the following: a downturn in economic environment and client spending budgets; the company’s failure to meet growth and productivity objectives, a failure of the company’s innovation initiatives; risks from investing in growth opportunities; failure of the company’s intellectual property portfolio to prevent competitive offerings and the failure of the company to obtain necessary licenses; cybersecurity and data privacy considerations; fluctuations in financial results, impact of local legal, economic, political and health conditions; adverse effects from environmental matters, tax matters and the company’s pension plans; ineffective internal controls; the company’s use of accounting estimates; the company’s ability to attract and retain key personnel and its reliance on critical skills; impacts of relationships with critical suppliers and business with government clients; currency fluctuations and customer financing risks; impact of changes in market liquidity conditions and customer credit risk on receivables; reliance on third party distribution channels; the company’s ability to successfully manage acquisitions, alliances and dispositions; risks from legal proceedings; risk factors related to IBM securities; and other risks, uncertainties and factors discussed in the company’s Form 10-Qs,

 



 

Form 10-K and in the company’s other filings with the U.S. Securities and Exchange Commission (SEC) or in materials incorporated therein by reference.  Any forward-looking statement in this release speaks only as of the date on which it is made.  The company assumes no obligation to update or revise any forward-looking statements.

 

Presentation of Information in this Press Release

 

In an effort to provide investors with additional information regarding the company’s results as determined by generally accepted accounting principles (GAAP), the company has also disclosed in this press release the following non-GAAP information which management believes provides useful information to investors:

 

IBM results —

 

·                  presenting operating (non-GAAP) earnings per share amounts and related income statement items;

·                  adjusting for free cash flow;

·                  adjusting for currency (i.e., at constant currency);

·                  adjusting for the divestiture of the System x and the customer care outsourcing businesses.

 

The rationale for management’s use of non-GAAP measures is included as part of the supplemental materials presented within the fourth-quarter earnings materials.  These materials are available via a link on the IBM investor relations Web site at www.ibm.com/investor and are being included in Attachment II (“Non-GAAP Supplemental Materials”) to the Form 8-K that includes this press release and is being submitted today to the SEC.

 

Conference Call and Webcast

 

IBM’s regular quarterly earnings conference call is scheduled to begin at 5:00 p.m. EST, today.  The Webcast may be accessed via a link at http://www.ibm.com/investor/events/earnings/4q15.html.  Presentation charts will be available shortly before the Webcast.

 

Financial Results Below (certain amounts may not add due to use of rounded numbers; percentages presented are calculated from the underlying whole-dollar amounts).

 



 

INTERNATIONAL BUSINESS MACHINES CORPORATION

COMPARATIVE FINANCIAL RESULTS

(Unaudited; Dollars in millions except per share amounts)

 

 

 

Three Months Ended

 

Twelve Months Ended

 

 

 

December 31,

 

December 31,

 

 

 

 

 

 

 

Percent

 

 

 

 

 

Percent

 

 

 

2015

 

2014

 

Change

 

2015

 

2014

 

Change

 

REVENUE

 

 

 

 

 

 

 

 

 

 

 

 

 

Global Technology Services *

 

$

8,126

 

$

8,746

 

-7.1

%

$

32,017

 

$

35,442

 

-9.7

%

Gross profit margin

 

37.7

%

39.1

%

 

 

37.4

%

39.0

%

 

 

Global Business Services *

 

4,297

 

4,771

 

-9.9

%

17,166

 

19,512

 

-12.0

%

Gross profit margin

 

28.2

%

31.5

%

 

 

28.2

%

30.4

%

 

 

Software

 

6,767

 

7,578

 

-10.7

%

22,932

 

25,434

 

-9.8

%

Gross profit margin

 

88.0

%

90.0

%

 

 

87.3

%

88.6

%

 

 

Systems Hardware

 

2,372

 

2,406

 

-1.4

%

7,581

 

9,996

 

-24.2

%

Gross profit margin

 

48.0

%

49.6

%

 

 

46.6

%

39.5

%

 

 

Global Financing

 

454

 

532

 

-14.6

%

1,840

 

2,034

 

-9.5

%

Gross profit margin

 

39.9

%

48.7

%

 

 

45.6

%

49.4

%

 

 

Other

 

43

 

82

 

-47.1

%

206

 

374

 

-45.0

%

Gross profit margin

 

-312.7

%

-401.7

%

 

 

-253.0

%

-215.0

%

 

 

TOTAL REVENUE

 

22,059

 

24,113

 

-8.5

%

81,741

 

92,793

 

-11.9

%

GROSS PROFIT

 

11,407

 

12,862

 

-11.3

%

40,684

 

46,407

 

-12.3

%

Gross profit margin

 

51.7

%

53.3

%

 

 

49.8

%

50.0

%

 

 

EXPENSE AND OTHER INCOME

 

 

 

 

 

 

 

 

 

 

 

 

 

S,G&A

 

5,157

 

6,034

 

-14.5

%

20,430

 

23,180

 

-11.9

%

Expense to revenue

 

23.4

%

25.0

%

 

 

25.0

%

25.0

%

 

 

R,D&E

 

1,362

 

1,320

 

3.1

%

5,247

 

5,437

 

-3.5

%

Expense to revenue

 

6.2

%

5.5

%

 

 

6.4

%

5.9

%

 

 

Intellectual property and custom development income

 

(193

)

(199

)

-2.9

%

(682

)

(742

)

-8.1

%

Other (income) and expense

 

(146

)

(1,506

)

-90.3

%

(724

)

(1,938

)

-62.6

%

Interest expense

 

128

 

117

 

9.7

%

468

 

484

 

-3.2

%

TOTAL EXPENSE AND OTHER INCOME

 

6,308

 

5,767

 

9.4

%

24,740

 

26,421

 

-6.4

%

Expense to revenue

 

28.6

%

23.9

%

 

 

30.3

%

28.5

%

 

 

INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES

 

5,098

 

7,094

 

-28.1

%

15,945

 

19,986

 

-20.2

%

Pre-tax margin

 

23.1

%

29.4

%

 

 

19.5

%

21.5

%

 

 

Provision for income taxes

 

638

 

1,580

 

-59.6

%

2,581

 

4,234

 

-39.1

%

Effective tax rate

 

12.5

%

22.3

%

 

 

16.2

%

21.2

%

 

 

INCOME FROM CONTINUING OPERATIONS

 

$

4,460

 

$

5,515

 

-19.1

%

$

13,364

 

$

15,751

 

-15.2

%

Net margin

 

20.2

%

22.9

%

 

 

16.3

%

17.0

%

 

 

DISCONTINUED OPERATIONS

 

 

 

 

 

 

 

 

 

 

 

 

 

Income / (loss) from discontinued operations, net of taxes

 

3

 

(31

)

 

 

(174

)

(3,729

)

 

 

NET INCOME

 

$

4,463

 

$

5,484

 

-18.6

%

$

13,190

 

$

12,022

 

9.7

%

EARNINGS PER SHARE OF COMMON STOCK:

 

 

 

 

 

 

 

 

 

 

 

 

 

Assuming Dilution

 

 

 

 

 

 

 

 

 

 

 

 

 

Continuing Operations

 

$

4.59

 

$

5.54

 

-17.1

%

$

13.60

 

$

15.59

 

-12.8

%

Discontinued Operations

 

$

0.00

 

$

(0.03

)

 

 

$

(0.18

)

$

(3.69

)

 

 

TOTAL

 

$

4.59

 

$

5.51

 

-16.7

%

$

13.42

 

$

11.90

 

12.8

%

Basic

 

 

 

 

 

 

 

 

 

 

 

 

 

Continuing Operations

 

$

4.60

 

$

5.57

 

-17.4

%

$

13.66

 

$

15.68

 

-12.9

%

Discontinued Operations

 

$

0.00

 

$

(0.03

)

 

 

$

(0.18

)

$

(3.71

)

 

 

TOTAL

 

$

4.60

 

$

5.54

 

-17.0

%

$

13.48

 

$

11.97

 

12.6

%

WEIGHTED-AVERAGE NUMBER OF COMMON SHARES OUTSTANDING (M’s):

 

 

 

 

 

 

 

 

 

 

 

 

 

Assuming Dilution

 

972.8

 

995.4

 

 

 

982.7

 

1,010.0

 

 

 

Basic

 

969.4

 

990.4

 

 

 

978.7

 

1,004.3

 

 

 

 


*Reclassified to conform with 2015 presentation.

 



 

INTERNATIONAL BUSINESS MACHINES CORPORATION

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

(Unaudited)

 

 

 

At

 

At

 

 

 

December 31,

 

December 31,

 

(Dollars in Millions)

 

2015

 

2014 * **

 

ASSETS:

 

 

 

 

 

Current Assets:

 

 

 

 

 

Cash and cash equivalents

 

$

7,686

 

$

8,476

 

Marketable securities

 

508

 

0

 

Notes and accounts receivable - trade
(net of allowances of $367 in 2015 and $336 in 2014)

 

8,333

 

9,090

 

Short-term financing receivables
(net of allowances of $490 in 2015 and $452 in 2014)

 

19,020

 

19,835

 

Other accounts receivable
(net of allowances of $51 in 2015 and $40 in 2014)

 

1,201

 

2,906

 

Inventories, at lower of average cost or market:

 

 

 

 

 

Finished goods

 

352

 

430

 

Work in process and raw materials

 

1,199

 

1,674

 

Total inventories

 

1,551

 

2,103

 

Prepaid expenses and other current assets

 

4,205

 

4,967

 

Total Current Assets *

 

42,504

 

47,377

 

Property, plant and equipment

 

29,342

 

39,034

 

Less: Accumulated depreciation

 

18,615

 

28,263

 

Property, plant and equipment - net

 

10,727

 

10,771

 

Long-term financing receivables
(net of allowances of $118 in 2015 and $126 in 2014)

 

10,013

 

11,109

 

Prepaid pension assets

 

1,734

 

2,160

 

Deferred taxes *

 

4,822

 

6,675

 

Goodwill

 

32,021

 

30,556

 

Intangible assets - net

 

3,487

 

3,104

 

Investments and sundry assets **

 

5,187

 

5,520

 

Total Assets * **

 

$

110,495

 

$

117,271

 

LIABILITIES:

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

Taxes

 

$

2,847

 

$

5,084

 

Short-term debt **

 

6,461

 

5,731

 

Accounts payable

 

6,028

 

6,864

 

Compensation and benefits

 

3,560

 

4,031

 

Deferred income

 

11,021

 

11,877

 

Other accrued expenses and liabilities *

 

4,353

 

5,994

 

Total Current Liabilities * **

 

34,269

 

39,581

 

Long-term debt **

 

33,428

 

34,991

 

Retirement and nonpension postretirement benefit obligations

 

16,504

 

18,261

 

Deferred income

 

3,771

 

3,691

 

Other liabilities *

 

8,099

 

8,733

 

Total Liabilities * **

 

96,071

 

105,257

 

EQUITY:

 

 

 

 

 

IBM Stockholders’ Equity:

 

 

 

 

 

Common stock

 

53,262

 

52,666

 

Retained earnings

 

146,124

 

137,793

 

Treasury stock — at cost

 

(155,518

)

(150,715

)

Accumulated other comprehensive income/(loss)

 

(29,607

)

(27,875

)

Total IBM stockholders’ equity

 

14,262

 

11,868

 

Noncontrolling interests

 

162

 

146

 

Total Equity

 

14,424

 

12,014

 

Total Liabilities and Equity * **

 

$

110,495

 

$

117,271

 

 


*  Reclassified to reflect adoption of the FASB guidance on deferred taxes in consolidated financial statements.

** Reclassified to reflect adoption of the FASB guidance on debt issuance costs in consolidated financial statements.

 



 

INTERNATIONAL BUSINESS MACHINES CORPORATION

CASH FLOW ANALYSIS

(Unaudited)

 

 

 

Three Months Ended

 

Twelve Months Ended

 

 

 

December 31,

 

December 31,

 

(Dollars in Millions)

 

2015

 

2014

 

2015

 

2014

 

 

 

 

 

 

 

 

 

 

 

Net Cash from Operating Activities per GAAP:

 

$

5,278

 

$

6,059

 

$

17,008

 

$

16,868

 

 

 

 

 

 

 

 

 

 

 

Less: the change in Global Financing (GF) Receivables

 

(1,810

)

(1,505

)

152

 

718

 

 

 

 

 

 

 

 

 

 

 

Net Cash from Operating Activities

 

 

 

 

 

 

 

 

 

(Excluding GF Receivables)

 

7,088

 

7,564

 

16,855

 

16,151

 

 

 

 

 

 

 

 

 

 

 

Capital Expenditures, Net

 

(1,016

)

(976

)

(3,780

)

(3,779

)

 

 

 

 

 

 

 

 

 

 

Free Cash Flow

 

 

 

 

 

 

 

 

 

(Excluding GF Receivables)

 

6,072

 

6,588

 

13,075

 

12,372

 

 

 

 

 

 

 

 

 

 

 

Acquisitions

 

(2,529

)

(6

)

(3,349

)

(656

)

Divestitures

 

87

 

1,869

 

(401

)

2,357

 

Dividends

 

(1,261

)

(1,089

)

(4,897

)

(4,265

)

Share Repurchase

 

(764

)

(132

)

(4,609

)

(13,679

)

Non-GF Debt

 

(898

)

(5,883

)

(128

)

(1,348

)

Other (includes GF Receivables, and GF Debt)

 

(2,080

)

(2,435

)

28

 

2,629

 

 

 

 

 

 

 

 

 

 

 

Change in Cash, Cash Equivalents and Short-term Marketable Securities

 

$

(1,373

)

$

(1,088

)

$

(282

)

$

(2,589

)

 



 

INTERNATIONAL BUSINESS MACHINES CORPORATION

SEGMENT DATA

(Unaudited)

 

 

 

FOURTH-QUARTER 2015

 

 

 

 

 

 

 

 

 

Pre-tax

 

 

 

 

 

 

 

 

 

 

 

Income/

 

 

 

 

 

 

 

 

 

 

 

(Loss)

 

 

 

 

 

Revenue

 

Continuing

 

Pre-tax

 

(Dollars in Millions)

 

External

 

Internal

 

Total

 

Operations

 

Margin

 

 

 

 

 

 

 

 

 

 

 

 

 

SEGMENTS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Global Technology Services

 

$

8,126

 

$

234

 

$

8,359

 

$

1,486

 

17.8

%

Y-T-Y change

 

-7.1

%

20.0

%

-6.5

%

4.5

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Global Business Services

 

4,297

 

118

 

4,415

 

708

 

16.0

%

Y-T-Y change

 

-9.9

%

-6.4

%

-9.8

%

-8.6

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Software

 

6,767

 

748

 

7,515

 

2,959

 

39.4

%

Y-T-Y change

 

-10.7

%

-11.5

%

-10.8

%

-21.4

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Systems Hardware

 

2,372

 

131

 

2,503

 

349

 

13.9

%

Y-T-Y change

 

-1.4

%

23.1

%

-0.4

%

-10.1

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Global Financing

 

454

 

763

 

1,216

 

674

 

55.4

%

Y-T-Y change

 

-14.6

%

29.7

%

8.7

%

28.3

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TOTAL REPORTABLE SEGMENTS

 

$

22,015

 

$

1,994

 

$

24,009

 

$

6,177

 

25.7

%

Y-T-Y change

 

-8.4

%

7.2

%

-7.3

%

-10.2

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Eliminations / Other

 

43

 

(1,994

)

(1,950

)

(1,078

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TOTAL IBM CONSOLIDATED

 

$

22,059

 

$

0

 

$

22,059

 

$

5,098

 

23.1

%

Y-T-Y change

 

-8.5

%

 

 

-8.5

%

-28.1

%

 

 

 



 

 

 

FOURTH-QUARTER 2014

 

 

 

 

 

 

 

 

 

Pre-tax

 

 

 

 

 

 

 

 

 

 

 

Income/

 

 

 

 

 

 

 

 

 

 

 

(Loss)

 

 

 

 

 

Revenue

 

Continuing

 

Pre-tax

 

(Dollars in Millions)

 

External

 

Internal

 

Total

 

Operations

 

Margin

 

 

 

 

 

 

 

 

 

 

 

 

 

SEGMENTS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Global Technology Services *

 

$

8,746

 

$

195

 

$

8,941

 

$

1,422

 

15.9

%

 

 

 

 

 

 

 

 

 

 

 

 

Global Business Services *

 

4,771

 

127

 

4,897

 

775

 

15.8

%

 

 

 

 

 

 

 

 

 

 

 

 

Software

 

7,578

 

845

 

8,422

 

3,765

 

44.7

%

 

 

 

 

 

 

 

 

 

 

 

 

Systems Hardware

 

2,406

 

107

 

2,512

 

388

 

15.5

%

 

 

 

 

 

 

 

 

 

 

 

 

Global Financing

 

532

 

588

 

1,119

 

526

 

47.0

%

 

 

 

 

 

 

 

 

 

 

 

 

TOTAL REPORTABLE SEGMENTS

 

$

24,031

 

$

1,860

 

$

25,891

 

$

6,876

 

26.6

%

 

 

 

 

 

 

 

 

 

 

 

 

Eliminations / Other

 

82

 

(1,860

)

(1,778

)

219

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TOTAL IBM CONSOLIDATED

 

$

24,113

 

$

0

 

$

24,113

 

$

7,094

 

29.4

%

 


*Reclassified to conform with 2015 presentation.

 

INTERNATIONAL BUSINESS MACHINES CORPORATION

SEGMENT DATA

(Unaudited)

 

 

 

TWELVE-MONTHS 2015

 

 

 

 

 

 

 

 

 

Pre-tax

 

 

 

 

 

 

 

 

 

 

 

Income/

 

 

 

 

 

 

 

 

 

 

 

(Loss)

 

 

 

 

 

Revenue

 

Continuing

 

Pre-tax

 

(Dollars in Millions)

 

External

 

Internal

 

Total

 

Operations

 

Margin

 

 

 

 

 

 

 

 

 

 

 

 

 

SEGMENTS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Global Technology Services

 

$

32,017

 

$

823

 

$

32,840

 

$

5,002

 

15.2

%

Y-T-Y change

 

-9.7

%

-11.9

%

-9.7

%

-15.7

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Global Business Services

 

17,166

 

499

 

17,664

 

2,634

 

14.9

%

Y-T-Y change

 

-12.0

%

-8.1

%

-11.9

%

-22.7

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Software

 

22,932

 

3,267

 

26,199

 

9,066

 

34.6

%

Y-T-Y change

 

-9.8

%

-6.6

%

-9.4

%

-15.3

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Systems Hardware

 

7,581

 

451

 

8,032

 

604

 

7.5

%

Y-T-Y change

 

-24.2

%

-30.3

%

-24.5

%

NM

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Global Financing

 

1,840

 

2,637

 

4,477

 

2,364

 

52.8

%

Y-T-Y change

 

-9.5

%

6.0

%

-1.0

%

8.0

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TOTAL REPORTABLE SEGMENTS

 

$

81,535

 

$

7,676

 

$

89,211

 

$

19,670

 

22.0

%

Y-T-Y change

 

-11.8

%

-5.3

%

-11.3

%

-11.6

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Eliminations / Other

 

206

 

(7,676

)

(7,470

)

(3,726

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TOTAL IBM CONSOLIDATED

 

$

81,741

 

$

0

 

$

81,741

 

$

15,945

 

19.5

%

Y-T-Y change

 

-11.9

%

 

 

-11.9

%

-20.2

%

 

 

 



 

 

 

TWELVE-MONTHS 2014

 

 

 

 

 

 

 

 

 

Pre-tax

 

 

 

 

 

 

 

 

 

 

 

Income

 

 

 

 

 

 

 

 

 

 

 

(Loss)/

 

 

 

 

 

Revenue

 

Continuing

 

Pre-tax

 

(Dollars in Millions)

 

External

 

Internal

 

Total

 

Operations

 

Margin

 

 

 

 

 

 

 

 

 

 

 

 

 

SEGMENTS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Global Technology Services *

 

$

35,442

 

$

934

 

$

36,376

 

$

5,931

 

16.3

%

 

 

 

 

 

 

 

 

 

 

 

 

Global Business Services *

 

19,512

 

543

 

20,055

 

3,408

 

17.0

%

 

 

 

 

 

 

 

 

 

 

 

 

Software

 

25,434

 

3,496

 

28,931

 

10,699

 

37.0

%

 

 

 

 

 

 

 

 

 

 

 

 

Systems Hardware

 

9,996

 

647

 

10,643

 

34

 

0.3

%

 

 

 

 

 

 

 

 

 

 

 

 

Global Financing

 

2,034

 

2,488

 

4,522

 

2,189

 

48.4

%

 

 

 

 

 

 

 

 

 

 

 

 

TOTAL REPORTABLE SEGMENTS

 

$

92,418

 

$

8,108

 

$

100,527

 

$

22,262

 

22.1

%

 

 

 

 

 

 

 

 

 

 

 

 

Eliminations / Other

 

374

 

(8,108

)

(7,734

)

(2,276

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TOTAL IBM CONSOLIDATED

 

$

92,793

 

$

0

 

$

92,793

 

$

19,986

 

21.5

%

 


*Reclassified to conform with 2015 presentation.

NM = Not Meaningful

 

INTERNATIONAL BUSINESS MACHINES CORPORATION

U.S. GAAP TO OPERATING RESULTS RECONCILIATION

(Unaudited; Dollars in millions except per share amounts)

 

 

 

FOURTH-QUARTER 2015

 

 

 

CONTINUING OPERATIONS

 

 

 

 

 

Acquisition-

 

Retirement-

 

 

 

 

 

 

 

Related

 

Related

 

Operating

 

 

 

GAAP

 

Adjustments*

 

Adjustments**

 

(Non-GAAP)

 

 

 

 

 

 

 

 

 

 

 

Gross Profit

 

$

11,407

 

$

105

 

$

119

 

$

11,630

 

 

 

 

 

 

 

 

 

 

 

Gross Profit Margin

 

51.7

%

0.5

Pts

0.5

Pts

52.7

%

 

 

 

 

 

 

 

 

 

 

S,G&A

 

5,157

 

(95

)

(88

)

4,975

 

 

 

 

 

 

 

 

 

 

 

R,D&E

 

1,362

 

 

(12

)

1,350

 

 

 

 

 

 

 

 

 

 

 

Other (Income) & Expense

 

(146

)

0

 

 

(146

)

 

 

 

 

 

 

 

 

 

 

Total Expense & Other (Income)

 

6,308

 

(95

)

(100

)

6,114

 

 

 

 

 

 

 

 

 

 

 

Pre-tax Income from Continuing Operations

 

5,098

 

199

 

218

 

5,516

 

 

 

 

 

 

 

 

 

 

 

Pre-tax Income Margin from Continuing Operations

 

23.1

%

0.9

Pts

1.0

Pts

25.0

%

 

 

 

 

 

 

 

 

 

 

Provision for Income Taxes***

 

638

 

89

 

82

 

809

 

 

 

 

 

 

 

 

 

 

 

Effective Tax Rate

 

12.5

%

1.2

Pts

1.0

Pts

14.7

%

 

 

 

 

 

 

 

 

 

 

Income from Continuing Operations

 

4,460

 

110

 

137

 

4,707

 

 

 

 

 

 

 

 

 

 

 

Income Margin from Continuing Operations

 

20.2

%

0.5

Pts

0.6

Pts

21.3

%

 

 

 

 

 

 

 

 

 

 

Diluted Earnings Per Share:

 

 

 

 

 

 

 

 

 

Continuing Operations

 

$

4.59

 

$

0.11

 

$

0.14

 

$

4.84

 

 



 

 

 

FOURTH-QUARTER 2014

 

 

 

CONTINUING OPERATIONS

 

 

 

 

 

Acquisition-

 

Retirement-

 

 

 

 

 

 

 

Related

 

Related

 

Operating

 

 

 

GAAP

 

Adjustments*

 

Adjustments**

 

(Non-GAAP)

 

 

 

 

 

 

 

 

 

 

 

Gross Profit

 

$

12,862

 

$

101

 

$

33

 

$

12,996

 

 

 

 

 

 

 

 

 

 

 

Gross Profit Margin

 

53.3

%

0.4

Pts

0.1

Pts

53.9

%

 

 

 

 

 

 

 

 

 

 

S,G&A

 

6,034

 

(94

)

(95

)

5,845

 

 

 

 

 

 

 

 

 

 

 

R,D&E

 

1,320

 

 

21

 

1,341

 

 

 

 

 

 

 

 

 

 

 

Other (Income) & Expense

 

(1,506

)

(1

)

 

(1,506

)

 

 

 

 

 

 

 

 

 

 

Total Expense & Other (Income)

 

5,767

 

(95

)

(74

)

5,598

 

 

 

 

 

 

 

 

 

 

 

Pre-tax Income from Continuing Operations

 

7,094

 

196

 

107

 

7,398

 

 

 

 

 

 

 

 

 

 

 

Pre-tax Income Margin from Continuing Operations

 

29.4

%

0.8

Pts

0.4

Pts

30.7

%

 

 

 

 

 

 

 

 

 

 

Provision for Income Taxes***

 

1,580

 

10

 

24

 

1,613

 

 

 

 

 

 

 

 

 

 

 

Effective Tax Rate

 

22.3

%

-0.5

Pts

0.0

Pts

21.8

%

 

 

 

 

 

 

 

 

 

 

Income from Continuing Operations

 

5,515

 

186

 

84

 

5,785

 

 

 

 

 

 

 

 

 

 

 

Income Margin from Continuing Operations

 

22.9

%

0.8

Pts

0.3

Pts

24.0

%

 

 

 

 

 

 

 

 

 

 

Diluted Earnings Per Share:

 

 

 

 

 

 

 

 

 

Continuing Operations

 

$

5.54

 

$

0.19

 

$

0.08

 

$

5.81

 

 


*  Includes amortization of acquired intangible assets and other acquisition-related charges.

**  Includes retirement-related items driven by changes to plan assets and liabilities primarily related to market performance.

***  Tax impact on operating (non-GAAP) pre-tax income from continuing operations is calculated under the same accounting principles applied to the GAAP pre-tax income which employs an annual effective tax rate method to the results.

 



 

INTERNATIONAL BUSINESS MACHINES CORPORATION

U.S. GAAP TO OPERATING RESULTS RECONCILIATION

(Unaudited; Dollars in millions except per share amounts)

 

 

 

TWELVE-MONTHS 2015

 

 

 

CONTINUING OPERATIONS

 

 

 

 

 

Acquisition-

 

Retirement-

 

 

 

 

 

 

 

Related

 

Related

 

Operating

 

 

 

GAAP

 

Adjustments*

 

Adjustments**

 

(Non-GAAP)

 

 

 

 

 

 

 

 

 

 

 

Gross Profit

 

$

40,684

 

$

373

 

$

469

 

$

41,526

 

 

 

 

 

 

 

 

 

 

 

Gross Profit Margin

 

49.8

%

0.5

Pts

0.6

Pts

50.8

%

 

 

 

 

 

 

 

 

 

 

S,G&A

 

20,430

 

(324

)

(533

)

19,573

 

 

 

 

 

 

 

 

 

 

 

R,D&E

 

5,247

 

 

(48

)

5,200

 

 

 

 

 

 

 

 

 

 

 

Other (Income) & Expense

 

(724

)

(5

)

 

(729

)

 

 

 

 

 

 

 

 

 

 

Total Expense & Other (Income)

 

24,740

 

(330

)

(581

)

23,830

 

 

 

 

 

 

 

 

 

 

 

Pre-tax Income from Continuing Operations

 

15,945

 

703

 

1,050

 

17,697

 

 

 

 

 

 

 

 

 

 

 

Pre-tax Income Margin from Continuing Operations

 

19.5

%

0.9

Pts

1.3

Pts

21.6

%

 

 

 

 

 

 

 

 

 

 

Provision for Income Taxes***

 

2,581

 

141

 

316

 

3,037

 

 

 

 

 

 

 

 

 

 

 

Effective Tax Rate

 

16.2

%

0.2

Pts

0.9

Pts

17.2

%

 

 

 

 

 

 

 

 

 

 

Income from Continuing Operations

 

13,364

 

562

 

734

 

14,659

 

 

 

 

 

 

 

 

 

 

 

Income Margin from Continuing Operations

 

16.3

%

0.7

Pts

0.9

Pts

17.9

%

 

 

 

 

 

 

 

 

 

 

Diluted Earnings Per Share:

 

 

 

 

 

 

 

 

 

Continuing Operations

 

$

13.60

 

$

0.57

 

$

0.75

 

$

14.92

 

 



 

 

 

TWELVE-MONTHS 2014

 

 

 

CONTINUING OPERATIONS

 

 

 

 

 

Acquisition-

 

Retirement-

 

 

 

 

 

 

 

Related

 

Related

 

Operating

 

 

 

GAAP

 

Adjustments*

 

Adjustments**

 

(Non-GAAP)

 

 

 

 

 

 

 

 

 

 

 

Gross Profit

 

$

46,407

 

$

416

 

$

173

 

$

46,996

 

 

 

 

 

 

 

 

 

 

 

Gross Profit Margin

 

50.0

%

0.4

Pts

0.2

Pts

50.6

%

 

 

 

 

 

 

 

 

 

 

S,G&A

 

23,180

 

(385

)

(257

)

22,537

 

 

 

 

 

 

 

 

 

 

 

R,D&E

 

5,437

 

 

77

 

5,514

 

 

 

 

 

 

 

 

 

 

 

Other (Income) & Expense

 

(1,938

)

(1

)

 

(1,939

)

 

 

 

 

 

 

 

 

 

 

Total Expense & Other (Income)

 

26,421

 

(386

)

(180

)

25,855

 

 

 

 

 

 

 

 

 

 

 

Pre-tax Income from Continuing Operations

 

19,986

 

803

 

353

 

21,142

 

 

 

 

 

 

 

 

 

 

 

Pre-tax Income Margin from Continuing Operations

 

21.5

%

0.9

Pts

0.4

Pts

22.8

%

 

 

 

 

 

 

 

 

 

 

Provision for Income Taxes***

 

4,234

 

133

 

73

 

4,440

 

 

 

 

 

 

 

 

 

 

 

Effective Tax Rate

 

21.2

%

-0.2

Pts

0.0

Pts

21.0

%

 

 

 

 

 

 

 

 

 

 

Income from Continuing Operations

 

15,751

 

670

 

280

 

16,702

 

 

 

 

 

 

 

 

 

 

 

Income Margin from Continuing Operations

 

17.0

%

0.7

Pts

0.3

Pts

18.0

%

 

 

 

 

 

 

 

 

 

 

Diluted Earnings Per Share:

 

 

 

 

 

 

 

 

 

Continuing Operations

 

$

15.59

 

$

0.66

 

$

0.28

 

$

16.53

 

 


*  Includes amortization of acquired intangible assets and other acquisition-related charges.

**  Includes retirement-related items driven by changes to plan assets and liabilities primarily related to market performance.

***  Tax impact on operating (non-GAAP) pre-tax income from continuing operations is calculated under the same accounting principles applied to the GAAP pre-tax income which employs an annual effective tax rate method to the results.

 

Contact:

IBM

 

Ian Colley, 914-434-3043

 

colley@us.ibm.com

 

 

 

John Bukovinsky, 732-618-3531

 

jbuko@us.ibm.com

 



ATTACHMENT II

4Q 2015 Earnings Presentation January 19, 2016

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2 Forward Looking Statements and Non-GAAP Information Certain comments made in this presentation may be characterized as forward looking under the Private Securities Litigation Reform Act of 1995. Forward-looking statements are based on the company's current assumptions regarding future business and financial performance. Those statements by their nature address matters that are uncertain to different degrees. Those statements involve a number of factors that could cause actual results to differ materially. Additional information concerning these factors is contained in the Company's filings with the SEC. Copies are available from the SEC, from the IBM web site, or from IBM Investor Relations. Any forward-looking statement made during this presentation speaks only as of the date on which it is made. The company assumes no obligation to update or revise any forward-looking statements. These charts and the associated remarks and comments are integrally related, and are intended to be presented and understood together. In an effort to provide additional and useful information regarding the company’s financial results and other financial information as determined by generally accepted accounting principles (GAAP), the company also discusses, in its earnings press release and earnings presentation materials, certain non-GAAP information including "operating earnings" and other "operating" financial measures. The rationale for management’s use of this non-GAAP information, the reconciliation of that information to GAAP, and other related information are included in supplemental materials entitled “Non-GAAP Supplemental Materials” that are posted on the Company’s investor relations web site at http://www.ibm.com/investor/events/earnings/4q15.htmlThe Non-GAAP Supplemental Materials are also included as Attachment II to the Company’s Form 8-K dated January 19, 2016.

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4Q and Full Year 2015 Overview 4Q15 Yr/Yr FY15 Yr/Yr Revenue ($B) $ 22.1 (2%)* $ 81.7 (1%)* Yr/Yr As Reported (9%) (12%) Operating (Non-GAAP) EPS $ 4.84 (17%) $ 14.92 (10%) *Revenue growth rate @CC , FY15 Revenue growth also excludes divested businesses Continued strength in Strategic Imperatives $29B revenue, +26% Yr/Yr, 35% of IBM revenue Profit dynamics reflect shift to higher value, higher investment levels, currency impacts and prior period gains Free cash flow of $13.1B, up Yr/Yr Free cash flow realization of 98% www.ibm.com/investor 3

 


Transformation Progress Strategic Imperatives Revenue Progression Capital deployed for growth Watson Health: Merge, Explorys, Phytel Watson IoT: The Weather Co (announced) Cloud acquisitions, including Cleversafe, Clearleap Cloud data centers, Bluemix expansion Expanded partnerships Repositioned Power and rolled out z13 Capital returned to shareholders: Reduced average share count by 2.7% Paid ~$5B in dividends Revenue growth rate @CC and excludes divested businesses Overlap in Strategic Imperatives primarily reflects solutions delivered via Cloud 2015 Yr/Yr Analytics $18B 16% Cloud 10 57% Mobile 3 250% Security 2 12% Social 1 21%aaS-exit run rate $5.3B +$1.8B www.ibm.com/investor 4

 


Key Financial Metrics $ in Billions, except EPS impact of P&L Ratios B/(W) impact of P&L Highlights 4Q15 Yr/Yr 4Q14 gain* (Operating) 4Q15 Yr/Yr 4Q14 gain* Revenue $22.1 (2%) PTI – Operating $5.5 (25%) (17 pts) NI – Operating $4.7 (19%) (19 pts) EPS – Operating $4.84 (17%) (20 pts) GP Margin 52.7% (1.2 pts) PTI Margin 25.0% (5.7 pts) (5.8 pts) Tax Rate 14.7% 7.1 pts NI Margin 21.3% (2.7 pts) (4.6 pts) Revenue growth rate @CC *impact of $1.4B pre-tax 4Q14 System x divestiture gain Cash Highlights 4Q15 FY15 Free Cash Flow (excl. GF Receivables) $ 6.1 $ 13.1 Share Repurchase (Gross) 0.8 4.6 Dividends 1.3 4.9 Cash Balance @ December 31 8.2 www.ibm.com/investor

 


Revenue by Geography $ in Billions AP ex. Japan U.S. -5% EMEA Canada/ LA Japan +3% 6 Revenue growth rate @CC 4Q15 Yr/Yr Americas $10.3 (4%) Europe/ME/Africa 7.3 1% Asia Pacific 4.4 (3%) IBM $22.1 (2%) (2%) (4%) (11%) Major Markets Growth Markets BRIC Countries

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